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Editor's note: Below is an excerpt from Hedgeye CEO Keith McCullough's new eBook, Master the Market: A Hedge Fund Manager's Guide to Process and Profit. Click here to download the book for free. |
In the almost two decades since I was fired from Carlyle, my analyst team and I have built our entire risk management process around not screwing that up again. We don’t get every call right. But I’d humbly submit that we’ve built a risk management framework that enables investors to be more right than wrong.
For example:
- In early 2008, we signaled investors should go to 85% cash.
- In April of 2009, we went bullish on US Stocks.
- In 2016, we went long US Stocks.
- In October of 2018, we signaled buy Bonds and short US Stocks.
- In early 2020, we called for another US stock market crash
- Later in 2020, we went back to bullish on Global Equities.
- In January of 2022, we warned investors ahead of a -25% crash in US.
I’m leaving out a lot of other important examples, like getting long Commodities in June 2020 when the Fed said inflation was “transitory” and before Copper ripped 60%+. We also nailed a series of highly tactical calls in the time between the European Debt Crisis of 2010-2011 to the Fed-induced “taper tantrum” of 2013.
You get the point. We’re proud of our wins. But, then again, we expect to win.
More important, I’m proud of how my teammates and I follow a repeatable process that generates these money-making outcomes for our subscribers.
The secret to our success isn’t about gazing into a crystal ball to discover an obvious future. Despite what you’ll hear from always confident “experts” on Wall Street TV, financial markets are inherently uncertain. Successful investors must embrace this uncertainty.
The only way to combat uncertainty is to have a rules-based, repeatable process. A repeatable process allows the investor to make high-probability bets over time. Beyond that, a repeatable process enables investors to be more right than wrong and have the humility to change your mind when the facts change.
This is important. When your process tells you that the outcome you are positioned for is now less likely, you don’t argue with the data. You change your positioning. I’ve seen too many investors with a weak investing process fall in love with their positions. Unable to change their minds, these investors become trapped by their own “intelligence.”
I’d put the Hedgeye process up against any successful buyside hedge fund in the world. Many of these world-class investing organizations already pay us six figures or more for access to our process. (Currently, institutional Hedgeye subscribers manage more than $10 trillion in assets under management.)
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